The way employees feel about their compensation isn’t just about the numbers. Perceptions of pay equity play a huge role in terms of satisfaction. Devising a compensation structure that is fair, transparent, and aligns to the enterprise’s goals will instill commitment on the part of staff.
Make no mistake: How employees feel about their compensation isn’t just about the numbers. Their perceptions of pay equity play a huge role in terms of their satisfaction. Devising a compensation structure that is fair, transparent, and aligns to the enterprise’s goals will instill commitment on the part of staff.
A well constructed compensation program makes employees feel like owners, committed to your organization for the long term. And it is the longevity, stability, and continuity of people and their networks that are key value factors in accomplishing your organization’s objectives. High turnover means not only the loss of individuals and their unique skills and talents but also the loss of their tacit knowledge of how to get things done through their network of relationships inside and outside the organization.
So how can you use compensation and bonus reward programs to augment the shift in attitude of people in your organization from It’s just a job to This is my career? To engage people in a career path, each compensation-related program must be aligned with a philosophy of a career orientation and made openly visible. Nothing undermines the best of intentions of your programs more than a veil of mystery and the speculation that follows.
Questions of Fairness
Base compensation never motivates; it only satisfies or demotivates. While it would be the rare individual who would say no to more money, people think of their salary primarily in terms of fairness: Am I compensated appropriately for the effort I’m making, the level of skill I have, and the level of risk I’m expected to take? People are aware of the market for their qualifications and the effort expected. They seem to find out quickly what others in the organization are being paid no matter how confidential you try to keep this information. They will gauge their efforts and qualifications relative to their peers and expect to be compensated fairly.
While I have certainly experienced plenty of greed and a good many cases of delusional attitude in staff, by and large I’ve found that most people are quite satisfied, at least at the base salary level, if they feel that their compensation is fair.
Staff will factor additional issues into that gauge of fairness. The relative stature of your organization plays a big role. Larger companies and those that are deemed to be financially successful are expected to pay above the market, whereas startups and smaller organizations may still be considered fair at lower levels of compensation if employees feel they have a stake in the future and will be rewarded if their efforts help the organization become successful. They will also make allowances for enterprises that are engaged in work they consider to be extremely important to society or to their career.
Gender and ethnicity are core issues of fairness. Since people do find out about each other’s salary, tolerance for inequity is low, damaging both those being underpaid as well as those overpaid. People place a high value on equity relative to gender and ethnicity, responding well to transparent merit and performance-based evaluation for compensation.
Practice varies greatly regarding compensation for hours worked versus a monthly salary. At one end of the spectrum are unionized organizations with strict rules about pay for hours, multiples of pay for overtime, and other work rules. At the other end, professional firms often compensate on a monthly salary basis, expecting effort to be expended appropriate to the work needing to be done without regard to hours actually spent. The federal government has stepped in with rules governing exempt and non-exempt job descriptions, defining what type of work can be compensated on a salaried basis and what must be compensated at an hourly rate plus overtime beyond certain limits. But these are mechanical issues and allow a range of choices to be made to design a strategy that meets employees’ perceptions of fairness.
I favor a variation that seems to work well for design professionals. Most design firm employees function at a professional level that would qualify them as exempt from mandated overtime pay according to federal standards. Since much of our work involves careful accounting of time for billing purposes and performance measurement against fixed fees on assignments, I believe that people should account for the hours they work. This is also a good strategy for organizations that aren’t so time-driven relative to client billings since it allows for measurement of work effort expended against budgets created. But be careful that people don’t lose that do-whatever-it-takes-to-satisfy-the-client attitude by being driven solely to meet time budgets.
Throughout a career, a person’s ability or willingness to work more or less intensively varies a great deal. Particularly for women in senior professional roles, family circumstances periodically demand more time. I have found that metrics for direct salary based on experience and capability must be tempered by the number of hours worked. For equally qualified professionals, paying the same amount on a monthly basis to someone who is willing and able to work productively for 50 to 60 hours a week versus someone whose personal situation limits the commitment to 40 hours or less is simply unfair. To expect the same long hours of everyone uniformly could drive very capable and talented people away from the firm if they’re simply unable to put in the time. Compensating for hours productively worked is a fair response to varying lifestyle situations, relieving pressure on employees who feel they can’t get ahead without committing long hours.
Today as we’ve moved through generations X and Y, this is no longer a women’s issue. So a flexible strategy allows an organization to accommodate a variety of lifestyle choices, retaining talent even if it means accommodating a part-time commitment while meeting a test of fairness in compensation. Making this practice openly visible brings to a stop comments such as “Why am I working so hard while that person comes in at 9 and goes home at 5?”
Compensation commitments are made in a competitive market during the recruitment process. If times are good, salary demands are high, and to bring in key talent, organizations often find they must pay salaries that are above current compensation at a peer level in the organization. Conversely, when times are tough, people are often hired well below peer levels. Neither is fair and, with the knowledge that usually exists about salary, will cause dissent if not addressed over a reasonable short period of time. During cycles of rapid inflation, salaries can be adjusted frequently (as often as twice a year), allowing a firm to bring things to parity relatively quickly. But we’ve been in a period of low inflation for some time now, while a shortage of talent has frequently driven new employee compensation above existing employees with similar skills.
Few issues can be as disruptive to an organization as compensation. To build a culture of trust and fairness, the leaders of the organization must adjust under-compensated people upward, over-compensated people downward, or at least hold salary increases for people whose compensation is out of alignment until parity can be achieved. As tough as conversations about salary are, only an open discussion of the underlying need to maintain fairness and merit will build long-term satisfaction with any compensation program.
Blanket percentage salary increases simply don’t work. People want to know that their compensation is a reflection of merit and career growth. A general percentage salary increase will be discounted by everyone. As an employer, you receive no benefit. Each person will see only the increase above that standard amount as a true raise.
As rapidly as all businesses are changing, people must be adding new knowledge and skills to their repertoire every day just to stay even, so I favor, no matter what the rate of inflation, a zero-based approach to compensation adjustment, forcing a candid conversation with everyone in the organization concerning what they’ve accomplished to sustain or increase their current value to themselves, their clients, and the enterprise they’re a part of.
Beyond the Base
In considering performance-based rewards, most firms offer some sort of bonus or profit sharing. Bonuses are cash in hand to the employee as recognition for exceptional performance. Profit sharing programs are generally tax deferred, not immediately spendable, and represent participation in the profitability of the enterprise as a whole.
The nature of the design professions requires broad collaboration across the enterprise to achieve success for clients. Often, a serendipitous interaction with someone who is not involved directly with a project can lead to the innovation that sets the team on a true high-performance track. In other words, being part of the whole enterprise with the richness of its resources allows teams to perform at peak levels. Spot bonuses to individuals for an incremental act can encourage grandstanding — finding ways for an individual to shine, even going so far as to take credit for the work of others. The desired behavior is team-based and recognizes that real success in a design firm is the result of sustained, creative, and innovative efforts over a long period of time.
The long duration of our relationships with clients means that projects don’t have tidy finish points where performance can be neatly measured and rewarded. To recognize selling a job, making a brilliant design presentation, or getting a set of construction documents into the contractor’s hands within a tight deadline incrementalizes a profession in which the sustained engagement with the entire building team and the ability to provide thoughtful leadership through many minefields over a long period of time are the performance qualities that have the highest value to our clients. Therefore, bonus programs should be structured to place a premium on broad participation, shared innovation, and commitment to clients’ long-term goals.